Lehman Bros report on proposed changes to insurance legislation
Proposed changes to Bermuda's insurance company legislation "have been dismissed as irrelevant'' by analysts at securities house, Lehman Brothers in a new report, according to an article in Lloyd's List.
The analysts saw the proposals, however, as a demonstration of a tighter world wide focus on reinsurer solvency.
Chairman of the insurance Advisory Committee, Mr. Brian Hall, responded to the report by saying there was no criticism of the Island's introduction of new regulations.
Mr. Hall, who is also chairman of Johnson and Higgins (Bermuda) Ltd., told The Royal Gazette , "I believe that they are saying that the commercial markets, and their clients, need a solid capital base that will be around for the long-term.
"My sense is that they are recognising Bermuda as leading a regulatory initiative to firm up capital requirements and control distribution of surplus.
"The `irrelevance' that they refer to, means that the markets, themselves, set the levels of comfort that they work with, so whether there are regulations in force, or not, Bermuda's contribution to the world-wide capacity shortage will be measured by the commitment of those companies here to sound capital and underwriting practices.
"Having said that, I firmly believe that Bermuda needed to firm up its regulatory environment to communicate to the world at large that we expect high standards and commitments to be observed by those companies choosing to do business here.'' Chairman, president and CEO of Mid Ocean Ltd., Mr. Michael Butt, added, "The issue that the Lehman Brothers report appears to be raising is one that I would broadly agree on. I would agree that professional buyers in a professional market are already at or above the standards that (the new regulations') class four would set.
"But the fact that we are bringing those criteria up to international best practice is still positive in our view. The new standards are not critical, and I've never said they were, but helpful.
"The trading that is going on at the moment is professional to professional and we meet much more stringent criteria than the class four companies meet at the moment, but at least we are bringing the whole system up.
"There are many, many companies trading in London and the States that are not as well capitalised or with such conservative ratios. So setting standards is an incremental process on an international scale and I think with the new proposals, we are at the top end of the standards.'' But it would appear that the article confuses two separate proposed classes when it states, "For third party insurers and reinsurers, the $1,000,000-proposed requirement is only a tiny fraction of the $200-million to $250 million which the market demands of a serious player, they continue, and the same point holds for direct excess liability or property catastrophe reinsurance underwriters.'' Mr. Hall agrees with a position taken by Mr. Butt that two distinct classes are being confused as one. It is third class insurers for which it is proposed that there be a $1,000,000-requirement for capital and surplus. And few companies that would fit into that category would be capitalised at $200 million.
The $200-million capitalised companies would generally be the class four companies, where the capitalisation and surplus minimum is $100 million.
Said Mr. Butt: "They haven't bothered to mention the real innovation, which is the $100-million capital. I don't know anyone else who has that.'' Lloyd's List states, "The $120,000 and $250,000 minimum capital requirements for single parent captives with none or less than 20 percent of premium from unrelated sources are small numbers by any standards, say the analysts.